Published on and written by Cyril Jarnias
U.S. residential real estate is experiencing a strange stretch: prices have never been so high, households have never struggled so much to find housing, and yet the scenario taking shape for 2026 is neither a crash nor a magical return to 3% rates. Everything hinges on the interplay between interest rates, Federal Reserve decisions, more or less orthodox political interventions, and a housing deficit that has become structural.
The market is entering what several economists now call the “Great Housing Reset”: a multi-year period where sales slowly pick up, prices normalize in real terms, rates ease a bit without becoming ultra-low again, and the big question remains the same—how to produce enough housing.
Economists
A Housing Economy Caught in a Rate Vise
The main lever driving U.S. real estate today remains the cost of money. After the rate surge that began in 2022 to break inflation, the system is still digesting the shock.
In 2026, the average 30-year fixed rate hovers around 6.3%. That’s lower than the peaks above 7.5–8% reached in 2023, but far from the 3% seen in 2020–2021. Freddie Mac, for instance, reported an average rate of 5.98% in late February 2026, rising to 6.30% in mid-April. Other readings put the rate around 6.01% in mid-February, its lowest since fall 2022.
The average 30-year fixed mortgage rate forecast for 2026 according to several major financial institutions.
This new reality has a mechanical effect on monthly payments. According to calculations cited by several analysts, a $400,000 loan at 7.25% costs about $2,729 per month (principal + interest), compared to $2,398 at 6%, saving $331. For a $3,000 monthly budget, the drop from 6.8% to 5.99% increases purchasing power by roughly $30,000.
Key magnitudes can be summarized as follows:
| Key Indicator (30-year fixed) | 2025 (average) | 2026 (forecast) |
|---|---|---|
| Average annual rate | 6.6% | 6.3% |
| Most likely range | 6.0–6.8% | 6.0–6.4% |
| Possible temporary low | — | down to ~5.7–5.8% |
| Sustained return below 6% | No | Not before 2027 (NAHB) |
This moderate rate easing translates into some initial relief on monthly payments: for 2026, several scenarios suggest a decline of about 1.3% in the typical monthly housing payment, the first since 2020.
The Federal Reserve: Indirect Conductor of Mortgage Rates
In the background, everything stems from the Federal Reserve’s decisions, even though, legally, the Fed does not set mortgage rates. It controls the federal funds rate and the size of its balance sheet, which influences Treasury yields and, by extension, the cost of mortgage credit.
After the most aggressive tightening campaign in forty years (fed funds rate above 5.5% in 2022–2023), the Fed began a cutting cycle in 2025 with three 25-basis-point cuts in September, October, and December. By end of 2025, the fed funds rate had fallen to a range of 3.5–3.75%, a level maintained during the first 2026 meetings despite dissents within the FOMC.
The Fed’s internal projections and those of economists converge around two additional 25-basis-point cuts in 2026, bringing the terminal rate to around 3.25%. J.P. Morgan Global Research anticipates a similar path. But, as the Fed itself notes, this movement does not translate immediately or automatically into long-term rates.
Several factors frame this dynamic:
Overall inflation has fallen to around 2.4 to 2.7%, close to but still above the 2% target.
This setup argues for rates that decline gradually without returning to the extremes of 2020–2021. And crucially, it limits policy room: as Jerome Powell emphasizes, a more abrupt easing could reignite inflation.
Politics, Pressure on the Fed, and “Out of the Box” Interventions
Into this already complex landscape, politics enters in an unprecedented way. The Trump administration made lowering mortgage rates a central theme, promising to bring rates back to around 3% or even lower, as in early 2021. Multiple proposals have emerged: temporary caps on credit card rates, possibly extending mortgage terms to 50 years, restrictions on institutional investors, and most notably, direct use of government-sponsored refinancing agencies (Fannie Mae and Freddie Mac).
Two measures are particularly emblematic.
1. A Massive MBS Purchase by Fannie Mae and Freddie Mac
In early 2026, the White House ordered the GSEs (Fannie Mae, Freddie Mac) to buy up to $200 billion in mortgage-backed securities (MBS), drawing from their reserves built up under conservatorship. The stated goal: to lower 30-year rates by injecting liquidity into the secondary market.
In January, the daily average mortgage rate fell from 6.21% to 5.99%. This decline allows a buyer with a monthly budget of $3,000 to increase their purchasing power by about $14,000 compared to the previous month, and by more than $30,000 compared to when rates were near 6.8%.
But looking at the magnitudes, the structural impact is limited. The $200 billion represents barely 1.4% of a $14.5 trillion mortgage market. J.P. Morgan estimates this can reduce 30-year loan yields by at most 10 to 15 basis points. Especially since many major builders already offer significant “buydowns,” with rates 100 to 200 basis points below market to move their inventory.
Summary table:
| Measure / Volume | Estimated Amount | Expected Impact on Rates |
|---|---|---|
| Total mortgage market | ~$14.5 trillion | — |
| Fannie/Freddie MBS purchases | $200 billion (~1.4% of market) | –10 to –15 bps on 30-year |
| Average builder buydowns offered | 100–200 bps | Far more than MBS effect |
As a J.P. Morgan analyst sums up, this marginal reduction in market rates will not materially change demand, in a context where builders already offer much more substantial rate discounts.
2. A Proposal to Ban Institutional Investors from Buying Single-Family Homes
Another flagship measure: a ban on large institutional investors buying single-family homes, intended to “free up space” for first-time buyers. Again, the numbers provide a more nuanced picture.
Investors owning more than 100 homes account for only 1 to 3% of the U.S. single-family housing stock. Wall Street holds about 450,000 homes, barely 3% of the market. This concentration is very local: over 80% of these homes are in just 5% of counties, with peaks exceeding 20% of inventory in some Sun Belt metros like Jacksonville, Charlotte, or Atlanta.
J.P. Morgan economists, like Joseph Lupton, judge that the national impact of the measure will be “anything but a game changer”. Head of listed real estate research Anthony Paolone even believes that the shock to large landlords will be limited to a headwind of about 1% per year on their net income, at most. Above all, many of these investors have already pivoted to “build-to-rent,” constructing their own rental communities rather than buying existing homes.
Banning purchases by certain players does not create additional housing. Affordability primarily depends on supply, which is limited by constraints like zoning, permitting delays, land costs, and labor shortages—not the composition of buyers.
A More Serious Threat: Fed Independence
More concerning for financial markets than an MBS purchase program is the growing political pressure on the Fed. A criminal investigation into Jerome Powell over a planned renovation of the central bank’s headquarters, which he called a “pretext” to remove him, triggered a nearly unprecedented united front: former Fed chairs (Yellen, Bernanke, Greenspan), Republican senators, and economists all stressed that weakening monetary independence raises—not lowers—long-term rates.
Investors are already beginning to price this risk into Treasury yields: expectations of a less credible Fed in fighting inflation translate into higher long-term rates, and hence sustainably higher mortgage rates. In other words, an attempt to force the Fed to cut aggressively could paradoxically make mortgage credit more expensive.
Rates, Prices, and Purchasing Power: A Toxic Equation
The heart of the housing crisis in the U.S. has less to do with the absolute level of prices and more with their interaction with rates that have become “normal” by American historical standards. In ten years, prices have nearly doubled, driven by a decade of cheap credit, the pandemic boom, and a chronic construction deficit. From early 2020 to 2025, the national median still rose about 30%.
A few benchmarks illustrate this “double whammy”:
Key indicators (prices, rates, affordability) early 2026
The median existing home price is about $412,000 in early 2026, up from $389,800 two years earlier, a 5.7% increase.
Average 30-year rates went from about 3.1% at end of 2021 to a peak of 7.8% in October 2023, before settling around 6.8% in early 2026.
According to NAR, its Housing Affordability Index remains about 35% below its pre-COVID level.
The detailed analysis by Realtor.com regarding a hypothetical return to 2019 affordability is telling. At that time, the typical monthly payment accounted for about 21% of median income, or roughly 30% once taxes, insurance, and utilities were added. To return to that ratio today, three theoretical scenarios are tested:
| Variable to Adjust | Current Level (approx.) | Level Needed to Match 2019 | Change Required | Probability in 2026 |
|---|---|---|---|---|
| Mortgage rate | ~6.15% | 2.65% | –3.5 points | Considered very low |
| Median income | $84,763 | $132,171 | +56% | Very unlikely |
| Median price | $418,000 | $273,000 | –35% | Not expected |
None of these extreme adjustments are realistic for 2026. As it stands, the “theoretical” monthly payment on a median home exceeds 30% of median income, and that’s before property taxes, insurance, or maintenance. One study even mentions a recent period where more than $110,000 in annual income was needed to buy the median home, far from the actual median income of $81–85,000.
First-time buyers now account for only about 26% of transactions, down from a historical average near 40%.
The Lock-In Effect: When Rates Freeze the Existing Market
The phenomenon that most paralyzes the resale market is the “lock-in effect”: the vast majority of homeowners are carrying rates much lower than current offers and have no desire to give up that privilege.
More than 80% of borrowers have an interest rate at or below 6%, a proportion still massive despite a slight erosion since the 2020–2021 peak.
This lock-in has cascading effects:
– Millions of homeowners do not list their homes because they cannot relocate at a comparable cost;
– The supply of existing homes remains constrained, even when demand declines;
– Prices stay elevated despite lower volumes.
At the end of 2025, the supply of existing homes increased to 4.1 months of inventory, approaching a balanced market.
Inventory evolution table:
| Indicator | 2021 | 2025 | 2026 (projection) |
|---|---|---|---|
| Existing home inventory (months) | 2.3 | 4.1 | 4.6 |
| Annual inventory change | — | +15.2% | +8.9% |
This gradual normalization of inventory is already having a measured effect on prices: the median listing price for existing homes was $399,900 in January 2026, down a symbolic 0.1% year over year. The national Case-Shiller index posted annual growth of only 0.9% in January 2026, down from 4.2% a year earlier, and alternative measures (Zillow) indicate even softer growth.
A Relative Improvement in Affordability in 2026
Amid this rather bleak picture, 2026 nonetheless marks an inflection point: for the first time since the pandemic, incomes are expected to grow faster than home prices, and rates are edging down slightly. Several research teams (Realtor.com, Redfin, J.P. Morgan, Bank of America) converge on assumptions like these:
– Wage growth around 3.6–4%;
– Home price growth in the range of 0–2.2% depending on the source (0% for J.P. Morgan, +1% for Redfin, +2.2% for Realtor.com);
– Average 30-year rates of 6.3%, down from 6.6% in 2025.
The share of median income devoted to the typical mortgage payment could fall to around 29% in March 2026, below the symbolic 30% threshold for the first time since 2022.
That doesn’t mean households are breathing easy: once property taxes, insurance, and utilities are added, the full cost of homeownership remains above 30% of income for the median buyer. But a shift is occurring: for the first time since the Great Recession, mortgage payments are rising more slowly than incomes over a multi-year period. This is precisely what several analysts call the “Great Housing Reset.”
Transactions, Sales, and Geography: A Market Rebalancing
In terms of volume, the market is slowly emerging from its lethargy. Existing home sales fell to about 4.1 million units in 2025, well below the 5–6 million range of the 2010s. In March 2026, they fell another 3.6% month over month to a seasonally adjusted annualized rate of 3.98 million, but most projections expect a slight rebound as the year progresses.
Several scenarios give the following magnitudes:
| Indicator | 2025 (actual) | 2026 (current forecasts) |
|---|---|---|
| Existing home sales | ~4.1M | 4.13–4.2M (+1.7 to +3%) |
| Total sales (all categories) | ~4.1M | +3 to +14% (wide range) |
| New home sales | Modest increase | +1% expected |
J.P. Morgan economists stress a key point: a one-percentage-point drop in rates could increase the number of households theoretically able to buy by 5.5 million, including 1.6 million renters who could become first-time buyers. If only 10% of these households act, that represents up to 500,000 additional sales over a year. That’s the potential magnitude of a rate move like 7% → 6% in an already tight market.
At the same time, the geography of the market is reshuffling. The slowdown and inventory buildup manifest differently by region:
In the South and West, markets are more balanced with more inventory and stable or falling prices. In the Northeast and Midwest, supply remains limited and prices continue to rise above the national average.
Some analyses, for example, project price declines in about twenty major metropolitan areas, especially in Florida and the West, with expected drops exceeding 8–10% in cities like Cape Coral–Fort Lauderdale or North Port–Sarasota–Bradenton. Conversely, 70–80 large cities should see prices continue to rise, by a median of about 4%.
Construction, Shortage, and the Role of Rates in Supply
If demand suffers from higher rates, so does supply. Where one might hope that high prices would incentivize more building, the cost of financing and regulatory constraints hamper the adjustment. Between 2024 and 2026, residential construction data tell a mixed story.
In October 2025, housing starts fell 4.6% to 1.25 million units at a seasonally adjusted annualized rate, their lowest since 2020. Multifamily starts plummeted 22% month over month, 7.9% below their year-ago level. The single-family segment held up a bit better, rising 5.4% month over month to 874,000 units, but still 7–8% below year-ago levels.
In March 2026, single-family housing starts rose 10.8%, crossing the one-million-unit annualized mark.
But building permits tell a different story: after an 11% surge in February 2026, they fell 10.8% in March, with declines across all regions and housing types. Builders remain hesitant amid uncertainty over rates, materials costs, and labor.
Forecasts for 2026 are cautious:
| Segment | 2025 | 2026 (forecast) | 2027 (projection) |
|---|---|---|---|
| Single-family starts (NAHB) | ~930–940K | ~940K (+1%) | ~984K (+5%) |
| Multifamily starts | ~413K | ~392K (–5%) | ~367K (–6%) |
| Townhouse share | ~18–19% of single-family starts | Record high, near 19–20% | Stable / slight increase |
Two structural trends are emerging. First, the rise of townhouses and medium-density projects, more compatible with affordability and walkability goals. The share of townhouses in single-family starts exceeded 18.7%, the highest since the mid-1980s.
Build-to-rent (BTR) represents a partial response to the housing crisis: it involves single-family home communities built for rent, financed by institutional capital, sidestepping the debate on buying existing homes. This segment could reach 15% of new single-family starts in the medium term.
Despite these adjustments, the housing deficit remains massive. According to NAHB, about 1.2 million units are missing nationwide, while Freddie Mac pegged the gap at 3.8 million in 2024. Goldman Sachs even mentions a need for 3 million additional homes. In any case, current production is insufficient to close the backlog in a few years: at the recent pace of about 1.3 million starts per year, it would take roughly seven years of sustained effort to close a deficit of nearly 4 million units.
When Rates Also Weigh on Rentals and Precariousness
The affordability crisis is not limited to buyers. The rental market also bears the scars of this decade of underproduction and soaring costs. According to Harvard’s Joint Center for Housing Studies, 21.6 million renter households were already “cost-burdened” in 2024, including 11.2 million spending more than half their income on housing. The rent surge from 2020 to 2022 triggered an unprecedented affordability crisis, with a record 12.1 million renters “severely” cost-burdened in 2022.
In 2026, a paradoxical trend is emerging for rents: on one hand, an economic slowdown and moderation in home prices could lead to a slight decline in national rents, forecast between –1% and –1.4% for 2025–2026. On the other hand, rental demand is picking up as households give up on buying, while the multifamily pipeline is shrinking after a peak in deliveries.
The most cautious forecasts thus point to rental growth of around 2–3% annually by end of 2026, close to overall inflation. For renters, that’s relative progress after the COVID-era surge, but not true relief.
The HUD census counted 653,000 homeless individuals in January 2025, a 12% increase from 2023.
What Monetary Policy Can—and Cannot—Do
All serious economists converge on one idea: the Fed can ease the pain by lowering rates, but it cannot solve a supply crisis. Jerome Powell repeats: the central bank has the policy rate and its balance sheet as tools; it can influence the overall cost of credit, but not the number of homes built or the structure of zoning.
Academic research on monetary transmission through housing identifies several channels:
The cash flow channel affects variable-rate households, rare in the U.S. thanks to the 30-year fixed-rate mortgage, by reducing their disposable income. The asset price channel impacts home prices via the discount rate, altering perceived wealth and consumption. The collateral channel allows homeowners to borrow more easily when prices rise, using their home as leverage for spending.
Since the U.S. is dominated by the 30-year fixed-rate mortgage, the first channel is weaker than in Europe or in countries where loans are mostly adjustable. The share of fixed-rate loans exceeds 95%, which cushions the direct transmission of rate hikes to existing monthly payments. But, as a study cited by the Fed shows, transmission occurs gradually through new loans: as households move or refinance, a growing share of the stock becomes exposed to new rates, and the cumulative effect becomes significant after a few years.
In markets with inelastic supply, such as Boston or San Francisco due to strict zoning rules or geographic constraints, a restrictive monetary shock causes GDP and employment to fall more, while also worsening mortgage defaults and foreclosures, unlike cities like Houston or Atlanta where supply is more flexible.
Finally, the current situation complicates transmission during the easing phase. Many households already have extremely low rates (around 3.9% average on outstanding loans at end-2024, versus 6.7% for new 30-year loans). For a homeowner to have a financial incentive to refinance, rates would need to fall by about 3 percentage points, which is not on the horizon. The gradual decline in rates will therefore primarily support new buyers and some marginal refinancing, but it will not trigger a mass refinancing wave comparable to 2020–2021.
Toward a “Reset” Rather Than a Crash
Given this set of constraints, one of the most plausible scenarios is a slow adjustment rather than a sudden break. J.P. Morgan Global Research forecasts broadly flat national prices in 2026 (0% change), while other players like Morgan Stanley or Realtor.com expect 1–3% nominal increases, a slight decline in real terms once inflation is accounted for.
Sales should rebound to around 4.2 million in 2026, with a more pronounced acceleration possible in 2027 if rates fall and incomes rise. This moderate scenario avoids a violent shock like 2008, which destroyed wealth, jobs, and credit for years.
The major weakness of this scenario is that it assumes continued improvements in supply. Without a significant and sustained increase in housing starts, ambitious zoning reforms to allow densification, and better-targeted fiscal policies (tax credits, enhanced LIHTC programs, support for “missing middle”), the relative brightening in 2026 may simply be a pause amid a long-term affordability crisis.
Monetarily, the Fed seems determined to stay the course: continue easing cautiously while reminding that the real solution for housing is built with cranes, permits, and local laws—not with promises of 3% rates that the bond market will not validate without, incidentally, a severe recession.
In short, U.S. real estate remains suspended from rates and monetary policy, but it can only escape the rut for good by confronting its real problem: the chronic shortage of affordable housing. The Fed’s decisions can make the journey less painful; they cannot, by themselves, change the destination.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
